DataRoom AM: Transurban's fast lane

Cross City Tunnel could be the start of a Transurban spending spree, while Dexus is set to be the largest office landlord in the country.

Transurban Group has jumped into the box seat to gain control of the Cross City Tunnel and it may just be the start of a spending spree for the ASX-listed toll road operator. It is also keen to make a multi-billion dollar play for a major toll road operator in Queensland.

Meanwhile, Dexus Property Group has all but wrapped up a buyout of the Commonwealth Property Office Fund, with the deal getting tongues wagging about the possibility of Australand to be the next takeover target.

Elsewhere, Ten Network Holdings outlines the cost of Lachlan Murdoch and James Packer’s backing, the race to carry out the scoping study on Medibank Private nears an end and Fortescue Metals Group re-prices its debt.

Transurban Group, Cross City Tunnel, Queensland Motorways

Transurban Group has acquired all of the Royal Bank of Scotland’s senior secured debt in the Cross City Tunnel.

The $475 million deal is likely a precursor to a takeover of the asset by Transurban, which said it hoped to seal the deal at a price of $500 million, well below the face value of the asset of $600 million.

The Cross City Tunnel in Sydney, built for $1 billion, has entered receivership twice in its eight-year history as traffic numbers have fallen well short of expectations.

Given Transurban’s other assets in Sydney, the Cross City Tunnel is a logical fit and the price the group appears set to buy for appears a steal. Still, that's what you get when you have a seller desperate to exit, a buyer with synergies to be reaped and an asset in receivership.

Transurban has positioned itself such that should a rival bid for the asset be forthcoming, it will at least make money on the debt it has purchased. Indeed, should a new player outbid Transurban, it stands to reap a profit of $100 million.

It is unlikely, however, that another suitor will enter the fray, with receivers expected to conclude the sales process in the first quarter of next year.

Meanwhile, the group has declared its interest in another major asset, Queensland Motorways, which could reap as much as $5 billion for its owner Queensland Investment Corporation.

Queensland Motorways owns the tolling rights to five roads in Brisbane.

"We think QML is a great asset, they have good people,” chief executive Scott Charlton said yesterday, according to The Australian.

“It is something we would have a look at. We could play different roles as an operator, owner, in back office, or working with partners.”

QIC has yet to formally put Queensland Motorways up for auction, but it is considered to be assessing buyer interest.

This might be a bit more of a risk for Transurban, however, with QIC having no desperate need to sell. It will almost certainly need to team with a cashed-up partner or two, likely either a local super fund or a Canadian pension fund.

Transurban securities closed down less than one per cent yesterday, in line with the broader market fall.

Dexus Property Group, Commonwealth Property Office Fund, Australand

Dexus Property Group and JV partner Canada Pension Plan Investment Board have received backing for a revised $2.84 billion bid for the Commonwealth Property Office Fund.

The independent directors of CPA manager, Commonwealth Managed Investments Limited, threw their weight behind the deal in the absence of a superior bid and opened the company’s books for Dexus and CPPIB to complete due diligence.

The deal will make Dexus the largest office property landlord in the country and this is good news, according to Moody’s. The ratings service has said Dexus will be reviewed for a possible upgrade based on the scale the deal offers them.

It’s a rare takeover deal when a buyer actually sees its debt risk decrease in the eyes of ratings agencies.

CPA was the most heavily traded stock on the ASX yesterday, closing one cent higher at $1.20 and just half a cent below the new offer. Dexus also closed one cent higher, at $1.07.

The news brings residential and commercial property developer Australand into focus, with the group widely considered a takeover candidate. According to The Australian, investment banks have been presenting proposals to Singapore-based CapitaLand, which currently owns 60 per cent of Australand, for a block trade in what is currently a hot market.

It would be good timing for a CapitaLand exit given that since the Dexus takeover proposal was first announced last month, Australand’s shares have climbed over 10 per cent.

CapitaLand mulled an exit this year, which led Australand to open its data room to possible suitors. While offers were received, they fell short on valuation.

CapitaLand, meanwhile, decided in July to retain its investment after a strategic review was completed. However, it scarcely mentioned the group in its latest results announcement.

The two companies most likely to be interested are GPT Group, which abandoned a bid earlier this year, and Stockland, which has long been a rumoured suitor.

Australand’s securities yesterday closed at a 52-week high.

Ten Network Holdings, Lachlan Murdoch, James Packer, Crown Resorts

Ten Network Holdings will now take its proposed $200 million facility with the Commonwealth Bank to shareholders following the release of an independent review of the deal by Deloitte.

The planned facility needs approval from shareholders as major shareholders Lachlan Murdoch, Bruce Gordon and James Packer are acting as guarantors.

It is now clear the financial compensation of the deal for the three backers, with Deloitte suggesting they will receive $19.6 million in the budget case or $19 million in an investment case.

Despite the fees, Deloitte and the independent members of the Ten board have recommended shareholders approve the deal at December’s AGM.

“If shareholder approval is not obtained, or the CBA Loan Facility does not proceed for any reason, Ten may need to seek alternative opportunities to proceed with its planned programming strategy and alleviate covenant pressure,” the board members warned.

“Given the inaccessibility of traditional debt financing markets, Ten may need to find an alternative structured debt facility, which may not be available or may only be available at a significantly higher cost than the proposed CBA Loan Facility and Shareholder Reimbursement Transaction Agreements.”

Speaking of Packer, the media and casino mogul has received final NSW government approval for the proposed Crown resort and casino in Barangaroo. The news comes as he visits Sri Lanka to make another push for a casino in the up-and-coming Asian region.

Medibank Private

Lazard and NM Rothschild & Sons are believed to be the frontrunners to conduct a scoping study on Medibank Private on behalf of the government.

Lazard has previously run scoping studies on the business in 2003 and 2006 making it the favourite, though if the government wants a fresh take it may look to Rothschild, or perhaps Greenhill & Co.

Gilbert Tobin and Herbert Smith Freehills, meanwhile, are considered keen to take on the lead legal advisory role.

Tenders are due today, with the scoping study required to be finished by February 28.

It is widely expected that the government will opt for a float over a trade sale, with a possible listing in 12 to 18 months’ time.

Wrapping up

On the back of solid results, a buoyant market and a rising share price, Fortescue Metals Group has re-priced its $US4.95 billion term loan in a deal that will save the miner $50 million a year in interest costs.

In finance, wealth manager AMP has lifted its floating rate note offering from $200 million to over $300 million on strong demand, according to The Australian, with the yield at the bottom end of the proposed range (5.23 to 5.43 per cent).

Meanwhile, National Australia Bank has reportedly increased its hybrid notes offer by 50 per cent to $750 million and will cap the offer at $1 billion. The deal could be launched as early as today.

Elsewhere, the book build for APN Property’s $250 million Industria REIT likely closed heavily oversubscribed overnight, The Australian reports. The trust is due to list on the ASX on December 3.

Finally, law firm Slater and Gordon Ltd appears set to make its fifth UK buy in 18 months after admitting it is in talks to acquire Pannone LLP. The company says it has the cash available to complete a few more deals in the region.

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